The Court of Appeal in Ingenious Media has upheld the High Court’s decision to refuse Ingenious Media Holdings plc its judicial review application against HMRC for the disclosure of information by the former permanent secretary for tax, David Hartnett. The court concluded that Mr Hartnett’s comments (made during an off the record briefing with journalists from The Times) did not breach HMRC’s duty of confidentiality because the disclosures were proportionate and served the legitimate purpose of publicising HMRC’s views regarding film schemes. The case considered the extent of HMRC’s duty of confidentiality and the scope of HMRC’s wider function.
Gideon Sanitt (Macfarlanes) considers the decision in Ingenious Media and when HMRC may be excused from its duty of confidentiality.
On 4 March 2015, the Court of Appeal upheld the High Court’s decision to refuse Ingenious Media Holdings plc its judicial review application against HMRC for the disclosure of confidential information (R (Ingenious Media Holdings plc and another) v HMRC [2015] EWCA Civ 173 (reported in Tax Journal, 13 March 2015).
On 12 October 2011, David Hartnett (the then permanent secretary for tax) was challenged by the Public Accounts Committee (PAC) over certain so-called ‘sweetheart’ tax deals. Under pressure to explain himself, Mr Hartnett regretted that he was unable to provide information about those arrangements as a result of HMRC’s duty of confidentiality, explaining to the PAC that: ‘there is no specific gateway that enables the disclosure of information to parliamentary committees and our advice is that I or any other official in HMRC disclosing specific taxpayer information to a committee is in jeopardy of committing a criminal offence.’
Mr Hartnett was not so restrained, however, when speaking (‘off the record’) to two journalists from The Times – Alexi Mostrous and Fay Schlesinger – about the same ‘cosy’ deals that HMRC had supposedly entered into with taxpayers. On that occasion, Mr Hartnett took a different approach, defending HMRC by referring to actions taken against individuals involved in tax avoidance, including one notable individual involved in film schemes.
This individual was identified (correctly) by Ms Schlesinger as Mr Patrick McKenna, the founder and CEO of the Ingenious Media group. Mr Hartnett proceeded to make a number of comments about Mr McKenna: ‘He’s an urbane man, he’s a former Deloitte partner, he’s a clever guy, he’s made a fortune, he’s a banker, but actually he’s a big risk for us...’
Mr Hartnett then offered the following vivid insight about the kinds of schemes promoted by Mr McKenna: ‘you won’t find anybody here at all, even the most pro-wealthy people, and I’m not sure we’ve got any, who thinks film schemes are anything other than scams for scumbags’.
Articles by Mr Mostrous and Ms Schlesinger followed a week later, citing some of the less controversial comments of Mr Hartnett (referred to simply as a senior HMRC official). Ingenious Media and Mr McKenna took exception to these comments, which they regarded as breaching HMRC’s duty of confidentiality, and challenged them by way of judicial review.
The starting point in considering HMRC’s duty of confidentiality is the Commissioners for Revenue and Customs Act 2005 s 18(1), which provides that: ‘Revenue and Customs officials may not disclose information which is held by the Revenue and Customs in connection with a function of the Revenue and Customs.’
A person will commit an offence if he discloses such information relating to a person whose identity ‘is specified in the disclosure or can be deduced from it’ (s 19). The key exception to this duty is where the disclosure ‘is made for the purposes of a function of the Revenue and Customs’ (s 18(2)).
Put simply, the function of HMRC is the ‘collection and management’ of tax (TMA 1970 s 1, although not referred to in Ingenious Media). The key question, therefore, was whether Mr Hartnett’s disclosures to the journalists were made ‘for the purposes’ of that function.
Ingenious Media also argued that the disclosures were in breach of art 8 of the European Convention on Human Rights and of art 1 of Protocol 1 to the Convention, in essence, because of the damage the disclosures had caused to Mr McKenna’s reputation and to Ingenious’s film financing business.
The High Court dismissed the application, on the basis that there was a ‘rational connection’ between the function of HMRC in collecting tax and the disclosures of Mr Hartnett. In particular, it was legitimate for Mr Hartnett to foster a spirit of cooperation with the journalists by discussing the matter ‘with measured frankness’. (This led some observers to wonder how far Mr Hartnett would have needed to go for his comments to be regarded as less than measured.)
Mr Justice Sales acknowledged that the effectiveness of a disclosure by HMRC must be balanced by the policy interest in encouraging taxpayers to be frank and open with HMRC. For this reason, giving the journalists access to the full tax files of Mr McKenna would have been a matter of ‘grave concern’.
Mr Justice Sales was also influenced by the nature of the disclosures: the comments were directed at the film schemes, rather than solely at Mr McKenna; the journalists were well-informed and from a reputable paper; and the meeting was conducted ‘off the record’. It was on this basis that Mr Justice Sales concluded that, whilst the deliberate disclosure of information to journalists did interfere with Mr McKenna’s human rights, the disclosures were a proportionate action taken to promote legitimate public interest objectives.
Although Mr Justice Sales did consider the proportionate nature of the comments, the emphasis was on judging the effectiveness of any disclosure by HMRC in order to determine whether it is legitimate: it is, if it deters taxpayers from film schemes; but it isn’t, if it discourages openness. In fact, many may challenge that focus, arguing that HMRC should not be throwing open its tax files to journalists, irrespective of how much such a disclosure may assist HMRC.
The Court of Appeal agreed with Mr Justice Sales that the disclosures served the function of HMRC, which the court construed widely as raising more tax revenue, and not merely collecting tax in specific cases. The court was, however, a little more circumspect as to the degree to which confidentiality could be disregarded. It relied on two key reasons for upholding the decision of Mr Justice Sales:
The court also relied on the circumstances of Mr Hartnett’s comments; namely, that they were made to ‘the very limited class of the journalists’ and during an ‘off the record’ meeting. It was noted that the more contentious comments by Mr Hartnett had not been reproduced in the articles. The judgment therefore focuses a little less on whether the disclosures were ‘effective’; and more on whether they were legitimate in supporting the public interest and were proportionate in the circumstances.
Mr Hartnett might still regard himself as fortunate. The court did not focus on the specific comments concerning Mr McKenna or the colourful terms in which film schemes were described (and what they implied about Mr McKenna). The court clearly did not feel that there was enough in Mr Hartnett’s comments to conclude that he had breached HMRC’s duty of confidentiality. At the same time, however, the court limited the practical comfort that HMRC could take from the decision by relying heavily on the facts of the case.
The case puts HMRC in a potentially awkward position. Given that the court’s judgment is so reliant on the facts, it does not draw a clear line between acceptable disclosure and unwarranted breach of confidentiality. Nonetheless, by confirming HMRC’s ability to inform the public of its views regarding particular tax arrangements, it may prove harder for HMRC to defend its silence in front of the PAC or to justify why it does not participate more often in public debates about tax issues.
There is little suggestion that HMRC is going to change its policy in light of Ingenious Media. However, during a recent session before the PAC, Lin Homer accepted that she would revisit the question of whether she had been ‘unduly defensive about confidentiality’.
The extent of HMRC’s duty of confidentiality depends upon HMRC’s function. The Court of Appeal held that HMRC’s function was wide; put simply, it is to raise more tax revenue. This may not seem a surprising conclusion, but it is significant. The court implied that HMRC was not simply concerned with enforcing the tax rules to maximise revenue, but that it could take a more proactive role.
This is also a topical issue. HMRC is increasingly engaged in influencing taxpayer behaviour, as demonstrated by many of the recently introduced rules, for example:
HMRC’s function, as a result of these rules, has evolved into something almost akin to that of a regulator. It has a responsibility to enforce, not just compliance with the tax rules, but also ‘responsible’ tax behaviour. Such a role has not been clearly defined. Indeed, there has been little debate as to the extent to which it is a proper role for HMRC.
The targeting of film schemes (and the reference to Mr McKenna) can be seen, therefore, as the result of HMRC not simply tackling a scheme of which it disapproves, but also the behaviour of those that would promote and invest in such a scheme.
Film schemes represent high stakes for HMRC, with various cases progressing through the courts. In reality, HMRC is not likely to change its policy of not commenting on individual cases.
What Ingenious Media does demonstrate is the benefit to a taxpayer of staying off HMRC’s ‘radar’, by convincing HMRC that they are engaged in responsible tax behaviour. This may mean considering more critically the commercial rationale for any proposed arrangement with tax benefits; and documenting more clearly the reasons for deciding to enter into such an arrangement. It may also mean taking a more active role in cooperating with HMRC (just as you might with a regulator). This may require engaging more closely with HMRC than has previously been the case. However, when dealing with HMRC, it may be more important to foster confidence than confidentiality.
The Court of Appeal in Ingenious Media has upheld the High Court’s decision to refuse Ingenious Media Holdings plc its judicial review application against HMRC for the disclosure of information by the former permanent secretary for tax, David Hartnett. The court concluded that Mr Hartnett’s comments (made during an off the record briefing with journalists from The Times) did not breach HMRC’s duty of confidentiality because the disclosures were proportionate and served the legitimate purpose of publicising HMRC’s views regarding film schemes. The case considered the extent of HMRC’s duty of confidentiality and the scope of HMRC’s wider function.
Gideon Sanitt (Macfarlanes) considers the decision in Ingenious Media and when HMRC may be excused from its duty of confidentiality.
On 4 March 2015, the Court of Appeal upheld the High Court’s decision to refuse Ingenious Media Holdings plc its judicial review application against HMRC for the disclosure of confidential information (R (Ingenious Media Holdings plc and another) v HMRC [2015] EWCA Civ 173 (reported in Tax Journal, 13 March 2015).
On 12 October 2011, David Hartnett (the then permanent secretary for tax) was challenged by the Public Accounts Committee (PAC) over certain so-called ‘sweetheart’ tax deals. Under pressure to explain himself, Mr Hartnett regretted that he was unable to provide information about those arrangements as a result of HMRC’s duty of confidentiality, explaining to the PAC that: ‘there is no specific gateway that enables the disclosure of information to parliamentary committees and our advice is that I or any other official in HMRC disclosing specific taxpayer information to a committee is in jeopardy of committing a criminal offence.’
Mr Hartnett was not so restrained, however, when speaking (‘off the record’) to two journalists from The Times – Alexi Mostrous and Fay Schlesinger – about the same ‘cosy’ deals that HMRC had supposedly entered into with taxpayers. On that occasion, Mr Hartnett took a different approach, defending HMRC by referring to actions taken against individuals involved in tax avoidance, including one notable individual involved in film schemes.
This individual was identified (correctly) by Ms Schlesinger as Mr Patrick McKenna, the founder and CEO of the Ingenious Media group. Mr Hartnett proceeded to make a number of comments about Mr McKenna: ‘He’s an urbane man, he’s a former Deloitte partner, he’s a clever guy, he’s made a fortune, he’s a banker, but actually he’s a big risk for us...’
Mr Hartnett then offered the following vivid insight about the kinds of schemes promoted by Mr McKenna: ‘you won’t find anybody here at all, even the most pro-wealthy people, and I’m not sure we’ve got any, who thinks film schemes are anything other than scams for scumbags’.
Articles by Mr Mostrous and Ms Schlesinger followed a week later, citing some of the less controversial comments of Mr Hartnett (referred to simply as a senior HMRC official). Ingenious Media and Mr McKenna took exception to these comments, which they regarded as breaching HMRC’s duty of confidentiality, and challenged them by way of judicial review.
The starting point in considering HMRC’s duty of confidentiality is the Commissioners for Revenue and Customs Act 2005 s 18(1), which provides that: ‘Revenue and Customs officials may not disclose information which is held by the Revenue and Customs in connection with a function of the Revenue and Customs.’
A person will commit an offence if he discloses such information relating to a person whose identity ‘is specified in the disclosure or can be deduced from it’ (s 19). The key exception to this duty is where the disclosure ‘is made for the purposes of a function of the Revenue and Customs’ (s 18(2)).
Put simply, the function of HMRC is the ‘collection and management’ of tax (TMA 1970 s 1, although not referred to in Ingenious Media). The key question, therefore, was whether Mr Hartnett’s disclosures to the journalists were made ‘for the purposes’ of that function.
Ingenious Media also argued that the disclosures were in breach of art 8 of the European Convention on Human Rights and of art 1 of Protocol 1 to the Convention, in essence, because of the damage the disclosures had caused to Mr McKenna’s reputation and to Ingenious’s film financing business.
The High Court dismissed the application, on the basis that there was a ‘rational connection’ between the function of HMRC in collecting tax and the disclosures of Mr Hartnett. In particular, it was legitimate for Mr Hartnett to foster a spirit of cooperation with the journalists by discussing the matter ‘with measured frankness’. (This led some observers to wonder how far Mr Hartnett would have needed to go for his comments to be regarded as less than measured.)
Mr Justice Sales acknowledged that the effectiveness of a disclosure by HMRC must be balanced by the policy interest in encouraging taxpayers to be frank and open with HMRC. For this reason, giving the journalists access to the full tax files of Mr McKenna would have been a matter of ‘grave concern’.
Mr Justice Sales was also influenced by the nature of the disclosures: the comments were directed at the film schemes, rather than solely at Mr McKenna; the journalists were well-informed and from a reputable paper; and the meeting was conducted ‘off the record’. It was on this basis that Mr Justice Sales concluded that, whilst the deliberate disclosure of information to journalists did interfere with Mr McKenna’s human rights, the disclosures were a proportionate action taken to promote legitimate public interest objectives.
Although Mr Justice Sales did consider the proportionate nature of the comments, the emphasis was on judging the effectiveness of any disclosure by HMRC in order to determine whether it is legitimate: it is, if it deters taxpayers from film schemes; but it isn’t, if it discourages openness. In fact, many may challenge that focus, arguing that HMRC should not be throwing open its tax files to journalists, irrespective of how much such a disclosure may assist HMRC.
The Court of Appeal agreed with Mr Justice Sales that the disclosures served the function of HMRC, which the court construed widely as raising more tax revenue, and not merely collecting tax in specific cases. The court was, however, a little more circumspect as to the degree to which confidentiality could be disregarded. It relied on two key reasons for upholding the decision of Mr Justice Sales:
The court also relied on the circumstances of Mr Hartnett’s comments; namely, that they were made to ‘the very limited class of the journalists’ and during an ‘off the record’ meeting. It was noted that the more contentious comments by Mr Hartnett had not been reproduced in the articles. The judgment therefore focuses a little less on whether the disclosures were ‘effective’; and more on whether they were legitimate in supporting the public interest and were proportionate in the circumstances.
Mr Hartnett might still regard himself as fortunate. The court did not focus on the specific comments concerning Mr McKenna or the colourful terms in which film schemes were described (and what they implied about Mr McKenna). The court clearly did not feel that there was enough in Mr Hartnett’s comments to conclude that he had breached HMRC’s duty of confidentiality. At the same time, however, the court limited the practical comfort that HMRC could take from the decision by relying heavily on the facts of the case.
The case puts HMRC in a potentially awkward position. Given that the court’s judgment is so reliant on the facts, it does not draw a clear line between acceptable disclosure and unwarranted breach of confidentiality. Nonetheless, by confirming HMRC’s ability to inform the public of its views regarding particular tax arrangements, it may prove harder for HMRC to defend its silence in front of the PAC or to justify why it does not participate more often in public debates about tax issues.
There is little suggestion that HMRC is going to change its policy in light of Ingenious Media. However, during a recent session before the PAC, Lin Homer accepted that she would revisit the question of whether she had been ‘unduly defensive about confidentiality’.
The extent of HMRC’s duty of confidentiality depends upon HMRC’s function. The Court of Appeal held that HMRC’s function was wide; put simply, it is to raise more tax revenue. This may not seem a surprising conclusion, but it is significant. The court implied that HMRC was not simply concerned with enforcing the tax rules to maximise revenue, but that it could take a more proactive role.
This is also a topical issue. HMRC is increasingly engaged in influencing taxpayer behaviour, as demonstrated by many of the recently introduced rules, for example:
HMRC’s function, as a result of these rules, has evolved into something almost akin to that of a regulator. It has a responsibility to enforce, not just compliance with the tax rules, but also ‘responsible’ tax behaviour. Such a role has not been clearly defined. Indeed, there has been little debate as to the extent to which it is a proper role for HMRC.
The targeting of film schemes (and the reference to Mr McKenna) can be seen, therefore, as the result of HMRC not simply tackling a scheme of which it disapproves, but also the behaviour of those that would promote and invest in such a scheme.
Film schemes represent high stakes for HMRC, with various cases progressing through the courts. In reality, HMRC is not likely to change its policy of not commenting on individual cases.
What Ingenious Media does demonstrate is the benefit to a taxpayer of staying off HMRC’s ‘radar’, by convincing HMRC that they are engaged in responsible tax behaviour. This may mean considering more critically the commercial rationale for any proposed arrangement with tax benefits; and documenting more clearly the reasons for deciding to enter into such an arrangement. It may also mean taking a more active role in cooperating with HMRC (just as you might with a regulator). This may require engaging more closely with HMRC than has previously been the case. However, when dealing with HMRC, it may be more important to foster confidence than confidentiality.
